Byline: CHARLOTTE BEUGGE
BRITONS are saving the most they've done for years, ploughing cash into National Savings & Investments, building society savings accounts and investment funds. But are we putting our money in the right places?
CHARLOTTE BEUGGE explains the problem - and offers solutions.
CASH: THE FIRST STEP
FIGURES from Portman Building Society suggest that only 11 pc of the adult population has contributed to a cash mini Isa this tax year, which started on April 6. And out of the 30.5 million UK taxpayers, just 5.17 million have a cash mini Isa for any tax year.
Cash mini Isas pay tax-free interest, tend to have higher interest rates than other accounts, and most offer instant access to your money, so they should be your first savings port of call.
The best cash Isa can pay up to [pounds sterling]45 more interest than the worst on a [pounds sterling]3,000 balance over a year.
Top deals include Halifax's phonebased Isa Saver Direct paying 5 pc on a minimum [pounds sterling]1 and Yorkshire Building Society's internet-only E-Isa at 4.9 pc on [pounds sterling]10. In the High Street Nationwide pays 4.6 pc on [pounds sterling]1. You can invest up to [pounds sterling]3,000 each tax year in a cash mini Isa.
Next on your list is making sure the rest of your savings aren't in low interest rate accounts. There would be a massive [pounds sterling]237.50 difference in interest over a year if you opted for the worst home for your [pounds sterling]5,000 in a deposit account compared with the best, says Moneyextra.
There are some real stinkers: Alliance & Leicester's Instant Access account pays just 0.2 pc after 20 pc savings tax (0.25 pc gross) on amounts of less than [pounds sterling]2,000 and Northern Rock's Instant Access account pays 0.2 pc (0.25 pc) on anything below [pounds sterling]25,000. National Savings & Investments pays just 1.4pc net (1.75 pc gross) on less than [pounds sterling]1,000 in its Easy Access Savings Account.
But with inflation at 2.7 pc, you need to earn at least this after tax just to preserve the spending power of your money. Financial adviser Bates says 26 pc of savings accounts fail to offer a real return to basic rate taxpayers, and for higher rate taxpayers it is 58 pc. However, 15 pc do match or exceed base rate - and you should pick one of these instead.
The best deal on the internet comes from Bradford & Bingley eSavings - 3.88 pc (4.85 pc) on a minimum [pounds sterling]1,000 with a pledge to pay at least base rate plus 0.25 pc before tax until June 30, 2006.
Those with decent High Street accounts include Skipton, Woolwich, Derbyshire and Yorkshire BS.
Thanks to increasing competition, there are also a number of niche accounts that offer good rates if you fit their profile (see page 42).
DEBT: STEP TWO
DESPITE the increase in saving, the average household owes [pounds sterling]7,713 excluding mortgages. Typical consumer borrowing via credit cards and other finance deals was, by the end of August, averaging [pounds sterling]4,087 per adult, according to Creditaction.
While the interest rate on a credit card will typically be about 14-15 pc, you're unlikely to get more than 5 pc on a savings account even if it's in an Isa.
So, if you have a credit card, personal loan or store card then use your savings to pay off this debt - as long as you won't be hit by penalties for repaying the loan or withdrawing your savings.
If you can't clear your debt immediately, then move your money over to a 0 pc deal and use that time period to clear the debt. Marks & Spencer Money is charging 0 pc on balance transfers for six months with no balance transfer fee.
Once you've got rid of your consumer debt, then consider repaying your mortgage, too. If you had a [pounds sterling]100,000, 20-year repayment …